Investors should sell the euro against the dollar ahead of the release of European bank stress tests tomorrow, targeting a “dip” to $1.26, according to Royal Bank of Scotland Group Plc.
“People wouldn’t want to go long on the euro into the stress tests,” Paul Robson, a senior foreign-exchange strategist at RBS, said today in a telephone interview from London. “Expect it to trade weakly into the results, to trade weakly afterwards and significantly lower over the next six months.”
The euro traded at $1.2917 against the dollar as of 3:22 p.m. in London, down from the two-month high of $1.3029 earlier this week.
European regulators are examining the strength of 91 banks to determine if they can survive potential losses on sovereign-bond holdings.
There’s “uncertainty over the timing of the announcement” as well as the potential for a “communication error” on the part of the European regulators, said Robson. “This isn’t going to be a defining moment of the euro-area crisis. We are in the slow burn.”